Gold hits 4-1/2 month low on Greece turmoil

SINGAPORE (Reuters) - Gold extended losses on Wednesday to slip to its weakest level since late December after the collapse of efforts in Greece to form a new government, prompting investors to cut exposure to the precious metal.

Bullion has this year been moving in tandem with assets that are perceived to be risky, shedding its status as a safe haven in times of economic instability.

Concerns about upheaval in the euro zone hit the euro and sent share prices lower across Asia as Greek political leaders meet Wednesday to form a caretaker government that will lead the country into its second election in just over a month.

U.S. June gold futures, which often dictate spot gold, dropped more than 1 percent to a low of $1,529.2 an ounce, their lowest since December 29. Cash gold was also at a 4-1/2 month low.

"Everybody is rushing to buy the U.S. dollar. A strong dollar is negative for gold for the time being," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong, adding that demand from jewelers was limited due to volatile prices.

"Jewelers don't know what to do. Maybe when the price has stabilized at some level, they will start to re-enter the market. There's a bit of scale-down buying."

Spot gold was down $13.34 at $1,530.76 an ounce by 2:39 a.m. EDT, having hit an intraday low of $1,529.43.

Gold rallied to a record of around $1,920 an ounce in 2011, when investors flocked to the metal as a safe haven during the debt crisis in Europe. But bullion is moving with riskier assets this year as investors turn to the safety of the dollar and the euro hits multi-month lows.

"It's risk aversion caused by concerns about Greece. Tokyo stock exchange also fell today, so everybody requires the dollar," said a bullion dealer in Tokyo, adding that investors cashed in gold to cover losses in other markets.

Money managers in gold futures and options slashed their net long positions by 20 percent to the lowest level since December 2008, as investors aggressively unwound their bullish bets in the precious metal after a sharp price pullback.

The euro hit a four-month low on Wednesday, a day after Greece called a new election that may hand victory to leftists opposed to the terms of an EU bailout and raise the risk of the country exiting the euro zone.

Party leaders will convene at the presidential palace at 2 p.m. (1100 GMT), but said they had little hope President Karolos Papoulias's offer would resolve a political crisis that has fuelled speculation Greece's days in the euro zone are numbered.

In equity markets, the Nikkei lost 1.1 percent, while MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> extended losses for the fourth consecutive day, sliding nearly 3 percent to a new 4-month low.

In the physical market in Singapore, jewelry makers from Thailand snapped up gold on the lower prices, while buyers from top consumer India could also return after buying some gold overnight.

"Definitely physical buying has gone up, although demand is not overwhelming. Indonesia has slowed down because there's a public holiday tomorrow, while Thailand is buying," said a dealer in Singapore.

"India did buy gold last night. They are not really in the market yet today, but I am sure they will be buying."

The wedding season is underway in India and will taper off by the end of the month. Gold jewelry is an essential part of the dowry Indian parents give to their daughters at weddings.

(Editing by Clarence Fernandez)

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